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Amazon and the effects of internet retailing are having a painful and frequently terminal effect on traditional retailers.

Britain is a good example. It has one of the more advanced internet shopping markets in the developed world, accounting for 16% of total retail sales in 2017, as per ONS data. It continues to grow rapidly, with e-commerce sales increasing by 16% in 2017, according to the same source.

The impact of this structural change to conventional retailers has been severe. Already several medium-sized companies have closed. So far these have tended to be weaker, poorly managed shops that were already struggling. Now however, major UK supermarkets and department stores are restructuring too.

For example, the grocery retailer Sainsbury’s, which had underlying retail sales of £31bn in 2017, is discussing merging with the smaller Asda, owned by Walmart. This follows on from Sainsbury’s purchase of the catalogue shop Argos, which Sainsbury’s has turned into a ‘click and collect’ store within its existing large supermarkets. The implication is that the combined group will be able to fight off any Amazon threat in the grocery market. In addition, the head of Walmart International has expressed interest in the Argos concept.

The concern about Amazon does not look completely misplaced. Reports have emerged over the past few weeks that the Seattle-based company has been making overtures to a number of large retailers around the world.

A string of press reports have asserted that John Lewis Partnership, which owns the Waitrose brand in the UK, was approached by Amazon at the end of 2017 in order to discuss some form of takeover. John Lewis, which is owned by its workforce, rejected the offer. Amazon’s advances are said to be part of a wider global attempt to purchase all or parts of very large retailers including, rumours suggest, Carrefour.

Fundamental to all of this strategic activity is investment in logistics technology. Conventional retailers are desperate to improve their ability to develop advanced software and hardware capacity in the face of Amazon’s huge investments in this area.

Grocery retailers in particular are fearful that Amazon will buy a large grocery business – larger than Whole Foods which it has already purchased – and deploy its technology in the business of selling food. This, among other reasons, is driving them to work together and pool both physical infrastructure as well as R&D.

Source: Transport Intelligence, June 28, 2018

Author: Thomas Cullen

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